It is normal for businesses to be busy when the end of the fiscal year is near. You'll see whole accounting or finance departments working non-stop until the last day. This is because they're trying to catch up with the deadline for filing taxes.
Taxes are one of the non-negotiables in business, and it’s no different with ecommerce businesses. Online businesses are also subjected to paying sales tax required by the state, depending on their nexuses.
Starting and running a business is no easy task, but even armed with this information, you’ll be surprised about how many documents you need to prepare for seamless operations, especially when dealing with sales tax permits and sales tax laws.
However, if you already have a business and are a third-party seller on Amazon, this article will guide you about the platform and how it deals with sales tax.
What is Sales Tax?
Before we move on to whether Amazon collects sales tax or not, it is important to understand what sales tax is and how it works. It's critical to comprehend why paying sales tax is important (and mandatory) and how it affects your company.
Sales tax should be collected from the final consumer of goods and services sold in a marketplace. Still, some goods may be exempt from sales tax. For example, many governments exempt sales tax for necessary goods, like foods, drinks, or groceries in general.
The sales tax nexus is the connection that requires sellers to register and then collect and remit sales tax to the state they belong to. Sales tax rates vary depending on a country's sales tax law. There is no national sales tax law in the United States. Hence there is no uniform rate, and it will depend on the state where you have nexus.
Not remitting sales tax (or remitting the wrong amount) can get your business audited and fined. Therefore, it’s extremely important to stay on top of your sales tax. This can get tricky with ecommerce businesses, but thankfully Amazon can help.
Amazon as a Marketplace Facilitator
If you want to sell goods and services, Amazon is a great place to start. Amazon.com is a platform where businesses can offer their goods and services alongside Amazon's own products.
Now, we will define and explain the Marketplace Facilitator legislation. Many US states have passed a law known as Marketplace Facilitator that gives Amazon the authority and duty of calculating and collecting sales tax, as well as remitting sales tax on behalf of third-party sellers.
These tax regulations shift the responsibility of sales tax collection and reimbursement from third-party sellers to Amazon as a marketplace facilitator.
These state that Amazon is liable for the collection, reimbursement, and remittance of sales tax from third-party sellers for transactions that are intended to be shipped to or made in a state or location where Market Facilitator law is in effect.
Sales Tax on Amazon
The process begins with Amazon sellers creating reports, invoices, receipts, or a combined sales tax report to the customers and the Bureau of Revenue, stating that the collected amount is sales tax due on the purchase.
Amazon then will collect and remit the seller’s sales tax from the sale to the government on behalf of the merchant once the customer has made their purchase.
Even though Amazon takes care of the collection and remittance of sales tax, merchants are still required to have a sales tax permit, and they also need to authorize Amazon to perform these duties on their behalf via their Amazon Seller Central account (where they can also find the tax document library).
Does Amazon Pay the Sales Tax for Sellers?
Now, onto the next big question: “Does Amazon pay the sales tax for sellers?” Customers pay a one-time sales tax whenever they buy products and services on Amazon. Ultimately, Amazon does not pay sales tax for sellers. The buyer will pay the sales tax for the purchased goods and services, and Amazon will only collect, calculate, and remit the sales tax.
The sales tax collection services provided by Amazon as a marketplace facilitator is free, and the process is streamlined and requires minimal participation and input from the sellers—making it efficient for the business.
How to Manually Set Up Amazon Sales Tax Collection
When selling products on Amazon, it is important to consider the applicable sales tax. In most cases, Amazon automatically collects the appropriate sales tax for you. However, there may be specific instances where you will need to set up sales tax collection on your own. This is how to do so.
To begin, first, make sure that you are registered with Amazon as a seller. Once you are registered and have an account, click the "Your Account" link in the top left corner of the main page. From here, click on "Settings" next to your name.
Under "General," select the "Taxes" tab and select the "Sales Tax" option. You can now enter your state's tax rate and click the "Save Changes" button at the bottom of the screen.
Know Your Next Move With Unloop
Though Amazon helps greatly, filing for sales tax permits and compiling accounting reports during tax season can still be exhausting. It can be very stressful, even for big companies with a whole department working on tax-related issues.
As a small business owner, it might seem impossible to do all this yourself. Especially since there are strict deadlines when it comes to filing taxes.Enter Unloop, the accounting solution you need. We’re adept at handling sales tax, especially for ecommerce businesses. However, our services are not limited to helping you with your tax woes. Our team of professionals can assist you in all aspects of accounting and provide you with data-driven results. Interested in our services? Book a call with us now and ensure your business's success!